If the world of real estate investing were simple, everyone would be a winner without any special knowledge or experience. The reality is that it's not always easy to win, even if you're only playing a game of Monopoly. The stakes are higher when you're using real dollars and the goal is to profit on an actual fix and flip. You need to know when to buy and the best way to secure a construction loan.
In this blog post, we provide a general overview of construction loans, as well as a list of what your lender will require from you before they loan you money.
Guess What? Local Knowledge Is Vital.
The diverse residential areas surrounding the nation's capital makes construction and renovation in the greater DC area an interesting challenge.There are historic enclaves, neighborhoods in transition, new subdivisions, single family homes, row houses, townhomes and condominium developments.
In short, the Washington area is rich with opportunity, but its diversity requires a keen sense and some fact-finding expertise in order to assure success.
There are, however, common elements that all lenders require in order to evaluate construction loan applications in the DC area, including suburban Maryland and Northern Virginia. The details may vary, but it is imperative that the numbers are accurate and location-specific. The ability to judge a neighborhood's character correctly, and to assess needs and tailor construction to specific markets, requires attention to detail and in-depth knowledge.
Because construction loans are based on after-repair value, it is important that your valuation is realistic and evident to your lender. Appraisals are location-specific, and market conditions vary. Building costs fluctuate and prices are influenced by trends and demand.
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Whether you're an owner, investor, builder, or contractor, there are specific requirements for securing a construction loan. Your bank or private lender will require some -- or all -- of the following information:
- A detailed project description, including plans, specifications and detailed cost projections;
- Total cost to complete, and anticipated profit;
- A summary of current and completed projects, with accompanying profit and loss figures;
- Current business and personal financial statements;
- Proof of insurance and licenses, as applicable;
- A list of materials, suppliers and subcontractors;
- A timeline for the anticipated work;
- Proof of your ability to "carry" the cost of construction. Typically, construction funding is for 70-75% of completed value.
Whether you seek funding for new construction, a remodeling loan on existing property or acquisition funding for new development, be ready with well-researched numbers and a realistic timeline.
Your lender wants to know that you're aware of municipal requirements, subdivision regulations, code compliance or zoning issues, permit fees, and association requirements that pertain to each project. Demonstrating flexibility, expertise and knowledge of the "tools" needed for the job will not only impress a lender, but will make your job easier.
If you are new to real estate investing, look for a private lender or hard money lender in the DC area who not only provides funding but has expertise in the field as well. The Walnut Street Finance team has actual in-the-field building experience, and will help you perform with "agility." We offer hard money loans with terms that typically range from six to eighteen months. We have first-hand knowledge of the multi-faceted neighborhoods that comprise the Washington, Maryland and Northern Virginia communities, and we evaluate each proposal quickly and on its individual merits.
We call it the Walnut Street advantage.